It is often cited with concern that the gap between the rich and the poor is widening. Usually this comes as a preface to some plan on how to either limit the income of the rich or to increase the income of the poor. Basically this gap is seen by many as a problem which needs to be addresses.
Is this gap really growing? The answer, of course, is yes....and no. Like most things with statistics, it depends on what you are really measuring. If you are looking at dollars of income then, of course, this gap is growing. Is that, however the meaningful measure? I would say that it is not. Rather, the meaningful statistic that should be considered for this type of analysis is quality of life. It is less often used, because it is much harder to define and since dollar income is a strong indicator for quality of life that is much easier.
The problem with looking only at dollar income is that, the dollar's contribution to quality of life is not linear it is a diminishing curve. What I mean by that is that for someone who makes $20,000 a year giving them an extra $1,000 has far greater impact to their quality of life than giving someone who makes $1 million an extra $1,000. (I would say that the curve is sharper than even an inverse geometric curve or that giving someone who makes $1 million and extra $50,000 would also be less impacting than giving the $20,000 earner an extra $1,000, but that is both debatable and not as much to the point).
The problem is that, especially as the high end of spending, there is a very diminishing return for spending. Take cars, for example. You can buy a nice, reliable, new car for under $20,000. On the other end of the spectrum you can pay easily over $400,000 for something like a Ferrari 599 (that's not even including the exotics like the Bugati Veyron which costs over $1.4 million, though I'm also ignoring that you can get a very reliably quality used care for under $10,000). So yes, a wealthy person can easily spend 20 times as much to get a new car. Does that translate into a twenty-fold increase in quality of life? Not even close. Don't get me wrong, Ferrari's a beautiful cars and I would love to drive one personally, but it doesn't hold near that value to me or, I would argue, to very many.
Perhaps cars are not a fair comparison. What about food? Meals at the top-end, first class restaurants can average over $175 per person and that's not including wine which can drive it up to $300 per person (again, that's not including the extreme cases such as the $30,000 meal in this article. or having a $2 per person low-end home cooked meal) On the other end of the scale you can get a meal at a low end restaurant (such as fast food) for under $7. Certainly, the top end meal is far better, and as a one time thing, it might even be the 25 times better that it costs. But we aren't talking about one time, we are comparing what wealth can buy. For that we are talking about normal living. Even if we talk about looking at the cost difference only of dinner now you are talking about a difference of $1,176 a week or over $60,000 a year. If you include high end wines you can double that easily. Now, if I make over a $1 million a year, then spending over $60,000 on food doesn't seem crazy, as percent of income it is the same as the person making $20,000 spending $1,800 on food for the year. Still, does increasing the quality from the type of meal you can get for $7 to the type of meal you can get for $175 really count as 25 times better? Again, don't think so. If you aren't convinced then look at the middle ground. An $80 per person meal is amazingly better than a $7, if not nearly 12 times as good, it might be close. However do you think that the $175 meal is over twice as good as the $80? Better, yes, but that much better?
You can look at nearly any area of quality of life measure and find the same thing. While the rich have many more dollars, as you spend more and more money on things you get rapidly diminishing increases to the quality of life for each dollar spent. At the same time, I would say that the difference between the middle top and the middle bottom end of quality of life items available is shrinking. Even low income families have access to entertainment options which rival those of the wealthy. Sure you might have to watch the Super Bowl at home on a mid-size TV as part of your $50 a month cable bill and have it catered by Subway for about $6 per person instead of a $15,000 luxury game suite, but you are still watching the same game. Yes the rich live better, even far better than the poor. But the relationship is certainly not accurately portrayed by just looking at the dollars of income.
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