# The American Dream: Income Equality, Mobility, and Oppotunity

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Economist
I'm sure you've all heard over and over again that income inequality in the US has increased over the years. This often leads people to conclude that "the rich are getting richer and the poor are getting poorer" and that "income mobility and opportunity are gone (or at least decresing)." However, data on growing income inequality does not say anything about the degree to which individuals move up income brackets throughout a lifetime, as well as saying nothing about the degree to which all brackets are getting richer.

Often times people seem to "care" about income inequality precisely because they think it "measures" the degree to which people in the US have the opportunity to move up the income ranks. In fact, income inequality data/studies tell us nothing about income mobility and opportunity.

Although income inequality seems to be increasing, it also seems that there is a great deal of income mobility and opportunity in the US, in fact, it seems that income mobility has possibly increased. It also seems that income inequality and income mobility are possibly correlated (meaning that decreasing income inequality may also decrease the mobility and opportunity to move up the economic ladder).

The reason that income inequality tells one nothing about income mobility is quite simple. Income inequality studies look at 5 income groups (broken up into 5 quintiles: bottom 20%, next 20%, next 20%, next 20%, top 20%). A widening between the bottom 20% and the top 20% tells us nothing about the human beings who make up these statistical categories. For all we know, last years bottom 20% is this years middle class or this years top 20%. For all we know, most of the people in the bottom 20% are mostly young people who are either in college, or are in the early stages of a job (either way, they're likely to move up significantly over the next few years). In other words, to say that the "rich are getting richer and poor are getting poorer" from income inequality data is to assume that yesteryear's rich is this years rich, and yesteryears poor is this years poor, and to make this assumption is a logical error.

In order to measure income mobility, one must follow individuals throughout time, and see the degree to which they moved up (or down) the income ladder. I just read a report which did exactly that, and the results are very different from the rhetoric one often hears from politicians, academics, and the media. In fact, income mobility is a very strong and alive force in the US. The following report was published by the Federal Reserve Bank of Dallas, and was released in 1995. Suprisingly, the discussion is still very relevant today, and I also have heard that many of the studies they discuss in this report have been updated and found the same results.

Lastly, if you're not going to read this report, then don't even bother responding to this thread. I only want to hear from people who've actually read the report, so that we can keep the discussion mainly based around the points made in the report. If you disagree with me and the report, that's fine, and honestly I would love to hear your feedback, but please read the report first. Also, even though it looks long, the actual report only goes half way down the page.

http://www.dallasfed.org/fed/annual/1999p/ar95.cfm [Broken]

Here's some quotes:

This picture of the income distribution would be useful if America were a caste society with rigid class lines keeping those in the bottom today there tomorrow. But if ours is not a caste society, such statistics tell us virtually nothing—particularly about opportunity. By nature, opportunity is personal, an assessment of how well-off you can be tomorrow relative to today. Even the most sophisticated income distribution studies fail to tell us what we really want to know: are most Americans losing their birthright—a chance at upward mobility?

Most important, a static portrait of income shares doesn't answer the question of whether low-income households are getting better or worse off over time. By definition, there will always be a bottom 20 percent, but only in a strict caste society will it contain the same individuals and families year after year. To decide that upward mobility has been lost in America, the evidence must show that the poor, for the large part, remain stuck where they are and that there's little hope of climbing up the income ladder.

In short, between opportunity and equality, it's opportunity that matters most. The prospect of upward income mobility is what individuals seek—indeed, that's what powers the whole economic system. Income's distribution comes second, both in order and importance.

Tracking individuals' incomes over time gives a startlingly different view of the forces shaping America's income distribution. Let's begin with the people who were in the bottom fifth of income earners in 1975. The conventional view leads us to think they were worse off in the 1990s. Nothing could be further from the truth. In the University of Michigan sample, only 5 percent of those in the bottom quintile in 1975 were still there in 1991.

Even more important, a majority of these people had made it to the top 60 percent of the income distribution—middle class or better—over that 16-year span. Almost 29 percent of them rose to the top quintile. This is a far cry from the popular vision of a society in which the poor are getting poorer. In fact, the evidence suggests that low income is largely a transitory experience for those willing to work, a place where people may visit but rarely choose to live.

There's further evidence that being in the low-income bracket isn't, for a large majority of people, permanent. Less than 0.5 percent of the sample showed up in the bottom quintile every year from 1975 to 1991. Nearly a quarter of those in the bottom tier in 1975 moved up the next year and never again returned. More than three-quarters of the lowest 20 percent in 1975 made it into the top 40 percent of income earners for at least one year by 1991. In fact, the poor made the most dramatic gains in the income distribution. Those who started in the bottom quintile in 1975 had a $25,322 average gain in real income by 1991. In the top quintile, the increase was$3,974. In other words, the rich have gotten a little richer, but the poor have gotten much richer.

The patterns are similar in other quintiles. Among the second poorest quintile in 1975, more than 70 percent had moved to a higher bracket by 1991—with 26 percent going all the way to the top tier. From the middle grouping, almost half of the income earners managed to make themselves better off. A third of the people in the second highest quintile made it to the highest fifth during these 17 years. All through the University of Michigan data, there's a consistent, powerful thrust toward the top of the income distribution.

There are those who would deny that America is still providing opportunity for most of its citizens. There's ample evidence to refute them. Upward mobility is alive and well. Even lower income households usually aren't left out of the country's progress: the consumption of those in the bottom fifth of the income distribution has shown improvement over the past two decades.

When, from their perch of the future, historians look back upon today, what will they conclude? Uncovering merely the fact that four out of five of today's 400 richest Americans are self-made, certainly they will pause to question today's popular rhetoric of snuffed opportunity, unfairness and trampled economic rights.

Without a doubt, the problem of poverty amid plenty continues in the United States, and we should help those who have difficulties grasping even the lowest rungs on the ladder. To be sure, many people have tried and failed, only to try again and fail again. There are no guarantees in life. Even so, hard data suggest that the popular view of America as a Land of Opportunity Lost—a caste society with strong class lines between the "haves" and the "have-nots"—is just plain wrong.

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russ_watters
Mentor
I'll get into this more later (we've discussed this before and it is a good topic), but just want to point out one thing:

Stats on income mobility don't necessarily paint the whole picture. They tell you how many people do move up, but they don't tell you how many people can move up. One of the most distressing things about this country is how so many people let the opportunities provided to them just slip by. That's an American cultural flaw that undercuts the otherwise excellent mobility potential in the country.

Economist
Stats on income mobility don't necessarily paint the whole picture. They tell you how many people do move up, but they don't tell you how many people can move up.

That's a valid point. However, I don't really know of any data that would allow one to measure how many people can move up. In fact, from an empirical standpoint, that might be an impossible thing to measure (it even seems difficult to find proxies for it).

Furthermore, the fact that high percentages of people do move up the income level at least shows that a high percentage of people can. As opposed to a situation in which there was very little upward mobility, which could make it trickier to distinguish between the who does and who can.

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Economist
I don't understand what's going on. Income mobility is a huge topic and on several occasions I've seen people on this forum state that people are stuck in the US, and the rich get richer while the poor get poorer and blah blah blah. I've also seen people use income inequality as a proxy for income mobility in discussions on this forum. Then I go out there, read an interesting and credible paper on the topic, take about 1 hour writing up a thoughtful post (especially considering people have been giving me a hard time lately for not writing enough when I post a link). And pretty much nobody responds to it??? Either one of two things is probably happening: 1) people are thinking to themselves, "Forget this stupid paper, I'm sure it's flawed, income mobility and oppotunity in the US sucks and income inequality data proves it. I'm not even going to respond to this thread because I know what's going on in the world." Or 2) people are saying, "Man I've been wrong all along. Income mobility and opportunity are pretty impressive in the US. Thanks Economist for your insightful link!"

Somehow I imagine the reality is closer to number 1.

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Gokul43201
Staff Emeritus
Gold Member
In fact, income inequality data/studies tell us nothing about income mobility and opportunity.

...

It also seems that income inequality and income mobility are possibly correlated (meaning that decreasing income inequality may also decrease the mobility and opportunity to move up the economic ladder).

...

The reason that income inequality tells one nothing about income mobility is quite simple.
Uncorrelated...correlated...uncorrelated? I'm confused!

russ_watters
Mentor
I don't understand what's going on. Income mobility is a huge topic and on several occasions I've seen people on this forum state that people are stuck in the US, and the rich get richer while the poor get poorer and blah blah blah. I've also seen people use income inequality as a proxy for income mobility in discussions on this forum. Then I go out there, read an interesting and credible paper on the topic, take about 1 hour writing up a thoughtful post (especially considering people have been giving me a hard time lately for not writing enough when I post a link). And pretty much nobody responds to it??? Either one of two things is probably happening: 1) people are thinking to themselves, "Forget this stupid paper, I'm sure it's flawed, income mobility and oppotunity in the US sucks and income inequality data proves it. I'm not even going to respond to this thread because I know what's going on in the world." Or 2) people are saying, "Man I've been wrong all along. Income mobility and opportunity are pretty impressive in the US. Thanks Economist for your insightful link!"

Somehow I imagine the reality is closer to number 1.
3. What I said in my post - it's a lot to read and an intelligent response to a post you put so much effort into requires a similar amount of effort. For me, it was the middle of the work week and I didn't want to put that much effort into it. (not that I would have disagreed anyway)

Economist
Uncorrelated...correlated...uncorrelated? I'm confused!

LOL! (Good point actually)

I'm saying that one cannot necessarily infer from the increasing income inequality in the US, that the rich are getting rich and the poor are getting poorer, or that people don't have the opportunity to move up the income ladder. In order to test for that, you'd have to follow individuals over time, which is what the article discusses. It seems from the article that income mobility is actually pretty strong in the US.

I should have specified my second point a little more clearly. The article mentioned that on the national level, countries with high income inequality generally have more income mobility than countries with low income inequality. Suprisingly, it seems that countries that have more dispersion in incomes offer their citizens more opportunity to move up (and also down) the economic ladder. Just for the record, I almost didn't even put in the second part you quoted because one would have to control for many other factors when comparing across countries.

Here's what I should have said. Are income inequality and income mobility correlated? I don't know, that's an empirical question, they may be and then again they may not be. Definitely, they're not necessarily correlated, and data on income inequality will not actually tell us anything about income mobility. In order to measure income mobility we have to follow people across their life cycle and see what they earn. It seems from the data analysed in the article that income mobility is alive and well in the US. Lastly, it's actually possible that income inequality and income mobility are correlated in the opposite direction as most people assume (in other words, they're positively correlated with one another). In other words, there may be a trade off, and legislation aimed at reducing income inequality may have the unintended consequence of decreasing income mobility. Once again though, that's even an empirical question, and one that I haven't seen any very convincing data on.

Amp1
Economist, I think there is a measure for income mobility although one would probably not see individuals but perhaps you would see groups. You have heard of the shrinking middle class? It implies that middle income brackets are moving downward towards poverty and with the mortgage crisis maybe that is truer today than before. Even so there would be a number also moving into the high income brackets.

There are stats; I’m sure even demographic stats, which show income levels and household composition (Census data for one). And if, they were examined over some particular time period; Graphs featuring trends involving income movement within ethnic and geographic groups could likely be extracted.

Mobility and dispersion of income seem to me to be related in this way. Ideally, wide differences in income would, intuitively speaking, be open for greater income mobility; one reason being dissatisfaction with ones standard of living and associated with that the motivation is for more satisfactory conditions. With more even dispersion of income, there is greater satisfaction and therefore less motivation for upward mobility and probaby a spreading out or bunching as peoples' minimun needs get met.

I don’t think anyone yet uses a system that allows any and every one to reach a level where they feel comfortable and satisfied with their standard of living. Such system would provide for all people, so they may enjoy a sustainable and satisfactory livelihood, shelter, and quantity of sustenance. It would not be a free ride. Everyone would be asked to produce in some mutually acceptable capacity to help benefit everyone. Let me stop there I didn’t mean to go so far OT. Sorry. ; ~ )

I figure that if my family can make it coming from such a disadvantaged situation, then this country isn't quite as bad as some people say. Of course, I am still in favor of those less ambitious than my parents making a more livable wage--not everyone wants to be a business person, after all, and all the years in communism must make business rather exciting for the Cubans. I know my dad is absolutely infatuated with it.

opus
WHILE Americans believe in the American Dream, the irrefutable theme that dominates and permeates American society,
... when 600 local residents were asked a simple question -- "Do you feel you personally are achieving the American Dream?" -- 68 percent answered yes.
there are problems with it, as an institutionalized ideology that justifies inequality.
From an IHT piece on the failure of neoliberalism:
On an individual level, a similar story pertains. Real wage increases in the top 13 countries of the Organization for Economic Cooperation and Development (OECD) have been below the rate of inflation since about 1970.
Thus wage earners - rather than asset owners - have faced a persistent 30-year downward pressure on their standard of living. It comes as no surprise to learn that the golden age for the wage worker, expressed as a percentage share of GDP, was between 1945 and 1973, and not under economic liberalization.
But the real story of neo-liberal success is not the extension of assets to all, but the huge and disproportionate share of wealth attained by the very rich. In the United States, between 1979 and 2004 the wealthiest 1 percent saw an increase in their share of national income of 78 percent, whereas 80 percent of the population saw an overall decrease in their income share by 15 percent. That's a wealth transfer from the large majority to a tiny minority of some $664 billion. An excerpt from The Guardian, 2003: The disparity in wealth between rich and poor, as well as between whites and minorities has rocketed, according to a report by the United States Federal Reserve. Quotations from a conference paper: Most of the summary measures reported in this paper lend support to the previously reported finding that the Nordic countries are characterised by significantly higher intergenerational income mobility than the United States. These two findings – higher low-income persistence and a lower likelihood of rags-to-riches mobility – seem to us quite powerful evidence against the traditional notion of American exceptionalism consisting of a greater rate of upward social mobility than in other countries. In light of this evidence, the U.S. appears to be exceptional in having less rather than more upward mobility. In terms of your article, Economist, I'm surprised you did not differentiate the difference between wealth and income. Wealth, as it stands, continues to be passed down by generation. Wealth, as in capital, securities, and assets - is the big thing to look at here - not income. Because wealth is what plays a big role in social development - most CEO's make just as much as lawyers (100k-200k), but it is their control of corporate shares that make the difference. Economist WHILE Americans believe in the American Dream, the irrefutable theme that dominates and permeates American society I don't get what your survey is supposed to prove. I'm an (aspiring) economist, and in case you haven't noticed, we don't care what people claim they feel or think, we care about what's actually going on. It doesn't mean much when a survey shows that the majority of American's think the American Dream is alive and well, just like it means nothing when the majority of American's think the economy is doing good or bad. This is the reason economists rarely use surveys, because we don't think they are very useful. Talk is cheap, and people's personal statements or feelings are not necessarily accurate, which is why we look for more systematic ways to study these topics. In terms of your article, Economist, I'm surprised you did not differentiate the difference between wealth and income. Wealth, as it stands, continues to be passed down by generation. Wealth, as in capital, securities, and assets - is the big thing to look at here - not income. Because wealth is what plays a big role in social development - most CEO's make just as much as lawyers (100k-200k), but it is their control of corporate shares that make the difference. So you admit that peoples incomes vary greatly and people move up and down income brackets frequently? And you admit that the bottom income brackets have a high probability of moving up to middle class or better in the future? So much for low income mobility and a stagnant under class and middle class. Also, if according to you, income isn't very important then why have I heard you refer to income inequality as a big deal? Wealth may continue to be passed down, but what does that prove? Are you saying that wealth should not be passed from one generation to another? I say it's their money, they can do what they want with it. Besides, there is no way of getting around this, because any attempt at not allowing people to pass wealth down after they die will just lead to incentives to do other things (spend like crazy in your old age by blowing money on stupid things, or even just giving your loved ones large sums of money or gifts before you die). Interestingly enough, even wealth mobility is much less set than you imply. It maybe true that wealth is passed down, but it hardly lasts for ever. On Greg Mankiw's blog he pointed out that the correlation between one's wealth and their grandchildren's wealth is very low. Furthermore, this is only anecdotal but the overwellming majority of the Forbes richest people (which looks at wealth not income) are self-made (meaning their wealth is not a result of inheritance). russ_watters Mentor WHILE Americans believe in the American Dream, the irrefutable theme that dominates and permeates American society, there are problems with it, as an institutionalized ideology that justifies inequality. From an IHT piece on the failure of neoliberalism: On an individual level, a similar story pertains. Real wage increases in the top 13 countries of the Organization for Economic Cooperation and Development (OECD) have been below the rate of inflation since about 1970. I'd really like to see the actual data for that. I realize that Europe hasn't advanced as fast as the US, but I cannot believe that that is true. In the US, over the long term, every income bracket has seen gains against inflation. It's been a few months since I've had to debunk this socialist myth, so here's the same data I link every time it comes up: http://www.census.gov/hhes/www/income/histinc/h01ar.html [Broken] And btw, Europe is more socialist than the US, so if they are in fact losing ground, it wouldn't be the fault of capitalism, it would be the fault of their socialism. But the real story of neo-liberal success is not the extension of assets to all, but the huge and disproportionate share of wealth attained by the very rich. In the United States, between 1979 and 2004 the wealthiest 1 percent saw an increase in their share of national income of 78 percent, whereas 80 percent of the population saw an overall decrease in their income share by 15 percent. That's a wealth transfer from the large majority to a tiny minority of some$664 billion.
And that's a big reason why I don't trust socialists. These pieces of information often follow each other in their arguments in a way that is intended to make you believe one supports the other. But this has nothing whatsoever to do with the issue. Everyone knows and accepts that free market systems have high income inequality, but when socialists and liberals try to make you believe that that means 'the rich get richer while the poor get poorer' (that's what this quote is intended to imply), it is a flat-out lie. As the income stats clearly show, the rich get richer faster, but the poor still also get richer. The fact that the share of the total wealth/income is decreasing doesn't mean anything at all. It is a completely worthless statistic for showing if people are making progress.

There is no "wealth transfer" from poor to rich. That's a common liberal/socialist lie. What the statistics show is merely that more of the newly generated wealth goes to the rich.

That study on income mobility looks interesting......and long...... but I wonder if it adequately deals with the issue of immigration? For better or worse, people in all countries are largely constrained to the relative success of their parents, but since immigrants start with a blank slate, they are often a good way to gage the potential for mobility in a country. I believe that there is a reason why immigration to the US is so high. As stories like Joe's show (and I'd really like to see some statistics about this), the potential for mobility in the US is extremely high. It is sad to me that so many people who already live here do not sieze the opportunities presented to them on a silver platter.

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Economist
There is no "wealth transfer" from poor to rich.

This is not completely true. In fact, a program that was set up in the name of transferring wealth from rich to poor, actually transfers wealth from poor to rich. Yes folks, I'm talking about Social Security.

It is sad to me that so many people who already live here do not sieze the opportunities presented to them on a silver platter.

Well, from the report, it seems that many people are moving up, so I think many are actually taking advantage of the opportunities.

ShawnD
Before this gets several pages long, there should at least be some numbers on the first page.

Anual Inflation (can I trust this?)
CPI - United States (wiki)

And just for kicks here is a short video (42 minutes) about what causes inflation/deflation and how money works

Based on those census numbers, here are the percentage income gains for the lowest quintile in the past 9 years. I'm using the "upper limit" for the lowest quintile. Next to the income change is the 12 month moving inflation average based on July (middle of the year) from that Anual Inflation link. Years where poor people beat inflation are bolded black, years where poor people lost to inflation are in red. It's hard to read the chart so I'll try to round to the nearest 0.25% of inflation
97-98 = +4.6 vs 2.5%
98-99 = +6.3 vs 1.5%
99-00 = +4.5 vs 1.75%
00-01 = +0.2 vs 3.25%
01-02 = -0.3 vs 3.25%
02-03 = +0.3 vs 1.5%
03-04 = +2.7 vs 2.25%
04-05 = +3.7 vs 2.5%
05-06 = +4.4 vs 3.0%

Poor people win 6/9 years. How is the bottom of the fifth quintile doing?
97-98 = 4.4 vs 2.5%
98-99 = 7.4 vs 1.5%
99-00 = 2.2 vs 1.75%
00-01 = 3.6 vs 3.25%
01-02 = -0.3 vs 3.25%
02-03 = 2.7 vs 1.5%
03-04 = 1.9 vs 2.25%
04-05 = 5.6 vs 2.5%
05-06 = 4.8 vs 3.0%

Rich people win 7/9. Poor people don't seem to be any worse now than they were before.

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drankin
Before this gets several pages long, there should at least be some numbers on the first page.

Anual Inflation (can I trust this?)
CPI - United States (wiki)

And just for kicks here is a short video (42 minutes) about what causes inflation/deflation and how money works

Based on those census numbers, here are the percentage income gains for the lowest quintile in the past 9 years. I'm using the "upper limit" for the lowest quintile. Next to the income change is the 12 month moving inflation average based on July (middle of the year) from that Anual Inflation link. Years where poor people beat inflation are bolded black, years where poor people lost to inflation are in red. It's hard to read the chart so I'll try to round to the nearest 0.25% of inflation
97-98 = +4.6 vs 2.5%
98-99 = +6.3 vs 1.5%
99-00 = +4.5 vs 1.75%
00-01 = +0.2 vs 3.25%
01-02 = -0.3 vs 3.25%
02-03 = +0.3 vs 1.5%
03-04 = +2.7 vs 2.25%
04-05 = +3.7 vs 2.5%
05-06 = +4.4 vs 3.0%

Poor people win 6/9 years. How is the bottom of the fifth quintile doing?
97-98 = 4.4 vs 2.5%
98-99 = 7.4 vs 1.5%
99-00 = 2.2 vs 1.75%
00-01 = 3.6 vs 3.25%
01-02 = -0.3 vs 3.25%
02-03 = 2.7 vs 1.5%
03-04 = 1.9 vs 2.25%
04-05 = 5.6 vs 2.5%
05-06 = 4.8 vs 3.0%

Rich people win 7/9. Poor people don't seem to be any worse now than they were before.

That paints a clear picture.

Poor people are getting richer, just not as fast as rich people. Which makes sense since rich people obviously know how to make money faster than poorer folks. Regardless, both classes have the opportunity to make more. Makes sense to me.

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Economist
Before this gets several pages long, there should at least be some numbers on the first page.

Anual Inflation (can I trust this?)
CPI - United States (wiki)

And just for kicks here is a short video (42 minutes) about what causes inflation/deflation and how money works

Based on those census numbers, here are the percentage income gains for the lowest quintile in the past 9 years. I'm using the "upper limit" for the lowest quintile. Next to the income change is the 12 month moving inflation average based on July (middle of the year) from that Anual Inflation link. Years where poor people beat inflation are bolded black, years where poor people lost to inflation are in red. It's hard to read the chart so I'll try to round to the nearest 0.25% of inflation
97-98 = +4.6 vs 2.5%
98-99 = +6.3 vs 1.5%
99-00 = +4.5 vs 1.75%
00-01 = +0.2 vs 3.25%
01-02 = -0.3 vs 3.25%
02-03 = +0.3 vs 1.5%
03-04 = +2.7 vs 2.25%
04-05 = +3.7 vs 2.5%
05-06 = +4.4 vs 3.0%

Poor people win 6/9 years. How is the bottom of the fifth quintile doing?
97-98 = 4.4 vs 2.5%
98-99 = 7.4 vs 1.5%
99-00 = 2.2 vs 1.75%
00-01 = 3.6 vs 3.25%
01-02 = -0.3 vs 3.25%
02-03 = 2.7 vs 1.5%
03-04 = 1.9 vs 2.25%
04-05 = 5.6 vs 2.5%
05-06 = 4.8 vs 3.0%

Rich people win 7/9. Poor people don't seem to be any worse now than they were before.

Well, you can't draw any conclusions about mobility because "the rich" from one year may be "the poor" in another year (and vice versa).

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russ_watters
Mentor
It's different than mobility in the traditional sense, but still relevant. "Mobility" typically means moving from one income bracket to another, while Shawn's stats simply show the whole bracket moves up.

Economist
It's different than mobility in the traditional sense, but still relevant. "Mobility" typically means moving from one income bracket to another, while Shawn's stats simply show the whole bracket moves up.

I know, I just want to point out the difference as people often confuse the two. Yes, "all boats are rising."

Economist
Interesting article from NY Times, I read about it here: http://cafehayek.typepad.com/hayek/2008/02/american-consum.html (you will find the link to the original article here as well)

Income statistics, however, don’t tell the whole story of Americans’ living standards. Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society.

The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent$69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.

The bottom fifth earned just $9,974, but spent nearly twice that — an average of$18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.

So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1. A similar narrowing takes place throughout all levels of income distribution. The middle 20 percent of families had incomes more than four times the bottom fifth. Yet their edge in consumption fell to about 2 to 1.

Let’s take the adjustments one step further. Richer households are larger — an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1. The average person in the middle fifth consumes just 29 percent more than someone living in a bottom-fifth household.