Consumption inequality is rising

In the last thirty years, consumption inequality has risen as fast as income inequality.

It has been a common belief that, while income inequality has risen rapidly in the west generally, and the United States specifically, inequality of consumption has travelled a much milder trajectory. Many reasons have been given for this effect, which was seen in a number of studies and generally assumed to be true.

Some argued that the divergence between the two was due to the unsustainable bubble of consumer credit; while the rich were getting richer faster than the poor were getting less poor, both ended up with mobile phones and flatscreen TVs, but the latter bought them with borrowed money. This, of course, leads those like Edwina Currie to argue that poor people aren't really poor because they have nice things.

Another interesting point raised off the back of the figures was the claim that it was entirely understandable, since the marginal utility of money declines pretty quickly. Thus, the explanation goes, income growth at the top end doesn't increase consumption all that much, since there isn't much to spend that money on. If this is true, then consumption inequality would indeed rise slower than income inequality in countries where absolute poverty is rare.

Now, though, it seems that both these arguments may come from faulty premises. A new paper from the American National Bureau of Economic Research argues that actually, consumption inequality has been rising at much the same rate as income inequality.

The authors write (£):

There is now mounting evidence that the [consumer expenditure survey, the source of many of the claims of divergence] is plagued by serious non-classical measurement error, which hinders the extent to which definitive conclusions can be made about the extent to which consumption inequality has evolved over the last three decades. . . 

Consumption inequality within the U.S. between 1980 and 2010 has increased by nearly the same amount as income inequality

And conclude:

Across every other measure of consumption we analyzed, consumption inequality increased substantially.

Of course, the same questions apply to consumption inequality as do to income inequality: why does it actually matter? So long as everyone can consume the essentials, does the difference between them and the rich have any effect?

The answer is one that Adam Smith hit upon over two centuries ago (although you are unlikely to find the libertarian Adam Smith Institute quoting it): what the rich can afford has a material effect on what is essential.

In The Wealth of Nations, published 1776, Smith wrote:

A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, nobody can well fall into without extreme bad conduct.

Custom, in the same manner, has rendered leather shoes a necessary of life in England. The poorest creditable person, of either sex, would be ashamed to appear in public without them. In Scotland, custom has rendered them a necessary of life to the lowest order of men; but not to the same order of women, who may, without any discredit, walk about barefooted.

In France, they are necessaries neither to men nor to women; the lowest rank of both sexes appearing there publicly, without any discredit, sometimes in wooden shoes, and sometimes barefooted. Under necessaries, therefore, I comprehend, not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people.

Cartoonist Ruben Bolling sums the argument up in eight panels.

To Smith's list we can reasonably add mobile phones (required for much shift work), computers (essential for jobseeking) and, in much of the country, cars. Consumption inequality adds to this list from the top end even as the bottom end remains unable to afford it.

Hat tip to Matt Yglesias for the paper.

A Tajik migrant texts in Moscow. Mobiles are an essential tool worldwide (Getty)

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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What Charles Windsor’s garden reveals about the future of the British monarchy

As an open-minded republican, two things struck me. 

First we are told that the Chancellor, Philip Hammond, has lost his battle for a “soft” Brexit. In a joint article, he and the International Trade Secretary, Liam Fox, the hardest of the ministerial Brexiteers, seem to agree that the UK will leave the European customs union in 2019. Then we get a reverse ferret. Hammond will go for a softish Brexit, after all. A government paper states that the UK will seek a “temporary customs union” in the “transition period” that, it hopes, will follow Brexit.

All this is a taste of things to come. We shall see many more instances of hard and soft Brexiteers celebrating victory or shrieking about betrayal. We shall also see UK and EU leaders storming out of talks, only to return to negotiations a few days later. My advice is to ignore it all until Friday 29 March 2019, when UK and EU leaders will emerge from all-night talks to announce a final, impenetrable fudge.

Lessons not learned

What you should not ignore is the scandal over Learndirect, the country’s largest adult training and apprenticeships provider. An Ofsted report states that a third of its apprentices receive none of the off-the-job training required. In a random sample, it found no evidence of learning plans.

Labour started Learndirect in 2000 as a charitable trust controlled by the Department for Education. It was sold to the private equity arm of Lloyds Bank in 2011 but remains largely reliant on public money (£158m in 2016-17). Since privatisation, 84 per cent of its cash has gone on management fees, interest payments and shareholder dividends. It spent £504,000 on sponsoring the Marussia Formula One team in an attempt to reach “our core customer group… in a new and exciting way”. The apprentices’ success rate fell from 67.5 per cent before privatisation to 57.8 per cent now.

This episode tells us that, however the Brexit process is going, Britain’s problems remain unchanged. Too many services are in the hands of greedy, incompetent private firms, and we are no closer to developing a skilled workforce. We only know about Learndirect’s failure because the company’s attempt to prevent Ofsted publishing its report was, after ten weeks of legal wrangling, overthrown in the courts.

A lot of hot air

Immediately after the Paris climate change accord in 2015, I expressed doubts about how each country’s emissions could be monitored and targets enforced. Now a BBC Radio 4 investigation finds that climate-warming gases emitted into the atmosphere far exceed those declared under the agreement. For example, declarations of methane emissions from livestock in India are subject to 50 per cent uncertainty, and those in Russia to 30-40 per cent uncertainty. One region in northern Italy, according to Swiss scientists, emits at least six times more climate-warming gases than are officially admitted. Remember this when you next hear politicians proclaiming that, after long and arduous negotiations, they have achieved a great victory.

Come rain or come shine

Climate change, scientists insist, is not the same thing as changes in the weather but writing about it brings me naturally to Britain’s wet August and newspaper articles headlined “Whatever happened to the sunny Augusts of our childhood?” and so on. The Daily Mail had one in which the writer recalled not a “single rainy day” from his family holidays in Folkestone. This, as he explained, is the result of what psychologists call “fading affect bias”, which causes our brains to hold positive memories longer than negative ones.

My brain is apparently atypical. I recall constant frustration as attempts to watch or play cricket were interrupted by rain. I remember sheltering indoors on family holidays with card games and books. My life, it seems, began, along with sunshine, when I left home for university at 18. Do psychologists have a name for my condition?

High and dry

Being an open-minded republican, I bought my wife, a keen gardener, an escorted tour of the gardens at Highgrove, the private residence of the man I call Charles Windsor, for her birthday. We went there this month during a break in the Cotswolds. The gardens are in parts too fussy, rather like its owner, but they are varied, colourful and hugely enjoyable. Two things struck me. First, the gardens of the elite were once designed to showcase the owner’s wealth and status, with the eye drawn to the grandeur of the mansion. Highgrove’s garden is designed for privacy, with many features intended to protect royalty from the prying public and particularly the press photographers’ long lenses. Second, our guide, pointing out what the owner had planted and designed, referred throughout to “His Royal Highness”, never “Charles”. I am pondering what these observations mean for the monarchy and its future.

Sympathy for the devil

Before leaving for the Cotswolds, we went to the Almeida Theatre in north London to see Ink, featuring Rupert Murdoch’s relaunch of the Sun in 1969. Many accounts of Murdoch  portray him as a power-crazed monster and his tabloid hacks as amoral reptiles. Ink is far more nuanced. It shows Murdoch as a mixture of diffidence, charm and menace, in love with newspapers and determined to blow apart a complacent,
paternalistic British establishment.

You may think that he and the Sun had a permanently coarsening effect on public life and culture, and I would largely agree. But he was also, in his own way, a 1960s figure and his Sun, with its demonic energy, was as typical a product of that decade as the Beatles’ songs. The play strengthened my hunch that its author, James Graham, who also wrote This House, set in the parliamentary whips’ offices during the 1970s, will eventually be ranked as the century’s first great playwright.

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear