You are what you earn

Today the New York Times published a very misleading editorial claiming that the discrepancy between the rich and the poor is not such a big deal after all.

The gist of the article is that the income gap in American society isn't as big a deal as it's made out to be. It claims that looking at the income alone is misleading because, instead of comparing income at various quantiles, we should instead be comparing personal consumption across quantiles. The authors move on to claim that consumption per person does not vary much within these households, e.g. "the average person in the middle fifth consumes just 29 percent more than someone living in a bottom-fifth household." Finally, the authors show a graph of adoption of various pieces of technology and make the claim that quick, universal adoption of technology means everyone is doing just great.

Here is why the authors are wrong:
First, most complaints about the income gap focus on the skew at the very top; for example, the top 1 percent earn 21.2 percent of the nation's income, and this fact is diluted by mixing these very wealthy with the rest of the top quartile.
Second, although the authors acknowledge that the bottom quartile include those living off savings like the elderly and those between jobs, they ignore this fact and move on. This is a very important part of the analysis, and it greatly skews the data set, ignoring those who are truly poor and the fact that the very poor cannot maintain a negative gross income.
Third, the authors make the claim that everyone is better off because we are adopting technology faster, and everyone has access to this technology. They use a graph to demonstrate this but ignore the fact that adoption of some of the earlier technologies (phone, electricity, and stoves) have heavy infrastructure costs not required by new, smaller pieces of technology (microwave, VCR, and Computer). The authors suggest that this is really all we should use to measure differences in "income", completely ignoring the much higher availability of education and real estate to the wealthy and lack of availability of this to the poor.

The authors, W. Michael Cox and Richard Alm, head the Federal Reserve bank of Dallas and have written a book called Myths of Rich & Poor: Why We're Better Off Than We Think. The bad comments on Amazon about this book suggest that it uses statistics to mislead.  Speaking of the Reserve bank of Dallas:  it has a very unnecessary (and slightly disturbing) essay in each annual report about how great the world is doing because of capitalism.