"Today while I was out running errands in my 5-year-old Honda Accord, I passed a Tesla. If I were a different kind of guy, seeing Elon Musk's latest creation whisk past me as I trundled along in my middleclassmobile might have inspired a sense of personal envy, or even some worry about the social implications of inequality in America.
But I'm an economist. And let's face it: In practical terms, the difference between a $200,000 Tesla and my last car, a beat-up minivan worth $2,000 at trade-in, is not all that large. They're both safe forms of transportation that get you from point A to point B and, given legal limits and the reality of suburban traffic, most of the time they're driven at roughly the same speeds.
In that sense, measures of income inequality overstate the differences within a developed country like the United States. The products available to the masses are, in many cases, nearly as good as those available only to the elite. Your garbageman's old Timex and your podiatrist's brand new Rolex serve almost precisely the same function.
It wasn't always so. A century ago, a hungry rich person had access to significantly more food and more choices than a poor one. Yet even bluebloods would have been able to get their hands on less variety and quality than one now finds at an average Midwestern all-you-can-eat buffet. When Herbert Hoover promised "a chicken in every pot" in the election of 1928, it was the sort of pledge that no one expected a politician to actually keep. Today, each American consumes an average of 27 chickens a year, and obesity is a bigger problem than hunger.
The chasm between the very rich and the median citizen yawns wider the further back you look. Three centuries ago, an aristocrat riding in a cushioned carriage would have looked down at a peasant trudging barefoot through the muck—a much more substantial difference than the Honda-Tesla gap today.
So why the 21st century panic about the gap between the rich and poor? At first glance, the numbers do look damning. Median family income has grown by about 20 percent since the 1970s, while income for those in the top 5 percent of households has grown by 75 percent or more, according to the Center for Budget and Policy Priorities. Economists Thomas Piketty and Emmanuel Saez looked at IRS data and concluded that the share of total pre-tax, pre-transfer income going to the top 1 percent has risen to levels not seen since the 1920s. That suggests an increase, not a decrease, in inequality.
But appearances can be deceiving. As the Brookings economist Gary Burtless has pointed out, if you account for transfers such as government housing assistance and employer-provided health insurance, "Americans in the bottom one-fifth of the distribution saw their real net incomes climb by almost 50 percent" since the late 1970s, while "those in the middle fifth of the distribution saw their incomes grow 36 percent." It's worth remembering that anytime someone says the gap between rich and poor is increasing, what he usually means is that rich people are getting richer faster than poor people are getting richer—not that any group is becoming worse off overall.
Meanwhile, the difference between the lived experiences of Americans at different income levels has actually been decreasing. Changes in the quality of goods consumed by almost everyone mean we're a whole lot more equal than the data superficially suggest.
What's more, the same behavior that sparks personal envy and political angst—splashing out on fancy apartments, rare jewels, and other truly scarce goods—may actually be a sign of the closing gap between rich and poor in practical terms. When everyone is wealthier, it becomes harder to demonstrate differences in wealth.
Economic growth and the technological developments it fuels have been spectacularly effective at making incredible products cheap enough to be attainable for most families. As a result, Americans can routinely enjoy luxuries of the sort they once might have assumed they'd have to win the lottery to afford. The big-screen TV that a super-wealthy denizen of Beverly Hills might have bragged about 30 years ago can't be given away today on Craigslist; a low-end Android smartphone boasts many times more computing power than the best supercomputers available only to scientists in 1985. And while many Americans may never make it to Africa, considering the wealth of programming available from places like the National Geographic channel and Netflix, they hardly need to.
If you suddenly became a multi-millionaire, what would you do with the money? Hire a chauffeur? Eat better food? Wear custom-designed clothes? Many of those very outcomes could soon be available to us all, assuming robust enough economic and technological advancement.
Imagine a world where self-driving luxury cars cost so little that the average family thinks it's normal to buy a new one every year, where fast-casual joints sell the equivalent of cuisine now served only at five-star restaurants, and where bespoke suits are computer-fitted and delivered by drone for the cost of a cheap three-pack of T-shirts today. What's crazy about these possibilities is that they're just that: possible.
Economic growth and technological development can do much to change your material standard of living, and they have done much to reduce the disparities in people's material well-being in the developed world. The result is something that looks not like you coming into millions overnight but like almost everyone coming into millions."