Explaining Southern California's economy

Why we should worry less about income inequality and focus on consumption

Consumption U.S.

AEI

Per-capita real consumption for both the bottom and top income quintiles has been trending up. AEI economist argue that this is more important than income inequality.

I had another great conversation with Aparna Mathur of the American Enterprise Institute last week (we last talked about a worrying "labor mismatch" in the U.S.). AEI is generally regarded as a conservative think tank, but regardless of your politics, it's been putting out some interesting research lately, and Mathur is an excellent explainer when it comes to labor and tax issues.

With Kevin Hassett, also of AEI, she's authored a new paper, titled "A New Measure of Consumption Inequality." Here's a sample:

Economists have widely acknowledged that consumption is a better measure of economic welfare than income. In general, individuals are better able to smooth consumption rather than income over their lifetimes, making consumption a more informative indicator in the study of inequality. Unlike income, consumption remains relatively steady throughout life since individuals borrow during years with low income and save in high-income years. Using consumption as the relevant measure of inequality, most studies conclude that, contrary to popular belief,inequality has remained fairly steady over the past thirty years. Our study retains the focus on consumption inequality and arrives at a similar conclusion. 

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Is a 'labor mismatch' making the jobs crisis worse?

Justin Sullivan/Getty Images

Job seekers wait in line to enter the San Francisco Hire Event job fair in San Francisco. They could be in the wrong place.

Just in time for last week's terrible jobs report from the Labor Department (150,000 new jobs expected, a mere 69,000 new jobs added, and that's U-G-L-Y), American Enterprise Institute resident scholar and economist Aparna Mathur wrote a piece about the bad numbers, arguing that they may not be something that we can easily blame on sluggish job creation:

Every month when the Bureau of Labor Statistics reports the unemployment rate, the underlying assumption in the minds of most consumers of the report, is that firms created fewer jobs and therefore hiring was low. Less well understood is the idea that while the jobs exist, firms may be unable to find workers to fill those positions.

I called Mathur to explore this idea a bit more deeply. Bear in mind that AEI, based in Washington, D.C., is generally regarded as a conservative think tank. Their resident scholars will tend to stress market-based solutions, rather than relying on government to extract us from problems. 

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