To gauge inequality, look at lifetime spending

With disadvantaged people of various stripes propelling the candidacies of Donald Trump and Bernie Sanders this year, is there any doubt that the United States’ have-nots have been wrung out by inequality?

The numbers seem to corroborate the tough-and-getting-tougher narrative: average real income up by 38 percent since 1989 for the top 5 percent of US households, while growing just 10 percent for the bottom 95 percent; the less wealthy half of Americans own a piddling 1 percent of the country’s total net wealth.

The numbers don’t lie—but they do overstate the problem, says Laurence Kotlikoff, professor of economics at Boston University.

In a recent paper posted by the National Bureau of Economic Research, he and coauthors Alan Auerbach of UC Berkeley and Darryl Koehler of Economic Security Planning say that for all their importance, inequality studies producing those numbers “fail an important test: none measures inequality in living standards, which should be the ultimate concern when assessing economic fairness. ”

If you look at the effects of government fiscal policy—taxes that people pay, especially the rich, and transfer payments (such as public assistance, Social Security, and Medicare) they receive, especially the needy—those have a dramatic effect on lessening inequality in a key area: expected future lifetime spending by households, Kotlikoff argues.

Where Americans live affects how long they live—if they’re poor

“The distribution of remaining lifetime spending, while still highly unequal, is considerably more equal then either net wealth or current income,” the study says. “For example, the top 1 percent of 40-49 year-olds ranked by resources account for 18.9 percent of total cohort net wealth and 13.4 percent of total cohort current income, but only 9.2 percent of…remaining lifetime spending.”

The fifth of the population in that age group with the fewest resources has only 2 percent of net wealth and less than 5 percent of income—but it accounts for 7 percent of total spending, the study says.

He spoke with university writer Rich Barlow about his study, which informs more than just his scholarship: he recently announced his write-in candidacy in this fall’s presidential election.

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Source: Futurity