Income Inequality Or Spending Inequality, Which Tells Us More?

When it comes to the gap between the world’s rich and poor nations income inequality doesn’t quite capture the enormity of the problem. Looking at what people spend rather than what they make does more to show why the gap between the rich and the poor is likely to remain a wide one for a long time to come.

Here is what Americans spend yearly on an admittedly oddball selection of products and services (the per person per year figures are based on a total U.S. population of 327 million people):

Let’s start with the $11 billion Americans spend on bottled water ($33.64 for every woman, man and child in the U.S.). There are currently about 730,000,000 people in the world who live on $1.90 per day, the World Bank’s lowest poverty threshold. For such a ($1.90 per day) person to spend $33.64 per year on bottled water would mean the equivalent of over 17 days of income. The IMF currently ranks the U.S. as number twelve in the world in terms of per capita income measured in purchasing power parity (PPP), for a total of $62,518. This means an average daily per person purchasing power of $171.28, which makes the $33.64 on bottled water the equivalent of five hours of income. That is eighty-two times less than what the poorest people on the planet would spend if indeed they were inclined to buy bottled water in the first place.

Bottled water is not a necessity in the United States. Some might even argue that it is a fad, if not an outright luxury. After all, since the late 1930s almost every American can get potable water by turning on a faucet in their home. For the poorest people in the Third World, however, even remote access to a water point is a luxury. In fact, the World Bank’s poverty threshold for water access is based on how long you have to walk to get it. If you have to walk 30 minutes or more to get water you rank among the very poorest, which is the case for the majority of the people in countries like Sierra Leone and Guinea.  If, say you have to walk 28 minutes to get water, you are considered better off. And we are talking about just water, period. Clean water is another matter. Even in a rising star, high growth economy like Ethiopia only 24% of people have access to clean water. Worldwide about 650 million people (roughly 8.5% of the world’s people) have no access to clean water, and thus have to drink dirty water, or spend precious money boiling it or spend up to 50% of their income buying it from sellers who deliver it in anything from tank trucks to donkey carts to tin cans.

Now look at what Americans spend eating out. The U.S. Bureau of Labor Statistics (BLS) Consumer Expenditures data show that the average “consumer unit” in the U.S. spends $3,260 per year on food away from home – that is, eating out. In fact, 44% of all the money we spend on food is spent eating out. (A “consumer unit” is defined as any household of two or more persons who share in decisions about expenditures, which is roughly equivalent to a household, and the BLS says that there are 129.7 million such consumer units in the U.S.) In the Third World a household is likely to be larger so let’s take a conservative average of four persons. A four-person household in a Third World country at the poverty threshold of $1.90 per day would have $2,774 per year in total income, which is 85% of what a U.S. consumer unit spends per year just going out to eat. To put it another way, the amount we spend on going out to eat is four and half times greater than the per capita purchasing power of one person in the Central African Republic (PPP income of $712). According to the IMF, the per capita purchasing power parity income of the richest fifteen countries combined in 2018 was $1,191,261. In contrast, the combined total for the fifteen poorest countries was $20,929, a mere 1.75 % of the total of the fifteen richest countries, or fifty-seven times less.

Read the rest of Thomas Dichter’s article at Forbes