In a recent column, I briefly poked fun at Donald Trump's claim that America's terrible airports make it look like a “Third World country,” a claim that suggests he hasn't been on a commercial flight in a long time.
Coincidentally, a few days ago I flew into Newark Liberty International Airport's new Terminal A, reminding me of something that's obvious to anyone who's flown commercial flights over the years: American airports have, in fact, gotten a lot fancier. I'd rather fly into Newark, New Jersey than many European airports where you have to take a bus from the plane to the terminal.
But it got me thinking: why do US airports have so many more amenities than they used to? (Security lines can make the flying experience miserable, but that's another issue.) The obvious answer is that airports are responding to customer demands, but that's always been the case.
Perhaps one of the main reasons is that, although flying is no longer the elite-only experience it was in the “jet set” days, the people who fly frequently and spend a lot of time in airports are much wealthier than average. And over the past 40 years, high-income Americans (and I'm talking about the top 10 or 20 percent, not the super-elite who never fly commercially) have experienced much bigger income increases than the middle class.
So my guess is that airports cater to this affluent demographic — the same demographic that's driving the proliferation of gourmet supermarkets and the gentrification of some cities is also making airport food and stores better than they used to be. I'm not making any value judgments here — I'm part of that demographic, so I'm benefiting from this trend.
My point is that airports, like many other places, cater to a certain income level. The wealthy therefore buy different things than those less fortunate. This means that the wealthy and the rest of the population are differently sensitive to price. There are countless posts on social media complaining about the price of food at airports and room service at luxury hotels.
But these aren't the prices that matter to most Americans. And because different people spend their money differently, the convenient abstraction we think of as the “consumer price level” gives way to the truth that different groups face at least somewhat different rates of inflation — that is, different slopes for different people.
My New York Times colleague Peter Coy wrote about this recently, but I thought I'd push the issue a little further and ask whether the diversity of inflation rates affects how we view how Americans have fared in recent years.
In fact, while it's fun to poke fun at wealthy people who complain about the price of fine dining, there's good reason to think that recent inflation has actually been harder for lower-income people. Why? It's mainly due to rising food prices.
I recently refuted the widely held claim that official figures on food prices in the U.S. vastly underestimate food price inflation. There is reason to believe that the BLS figures are more or less correct. But what the BLS figures do show is that food prices are rising more than overall prices, reflecting a variety of factors ranging from climate change to the war in Ukraine.
And one of the most established laws in economics is Engel's Law, which states that low-income households spend a higher percentage of their income on food than higher-income households. So does this mean that the past few years of economic growth in the United States have hurt the middle and working classes more than the wealthy? Not necessarily. There's something else going on.
As David Autor, Arindrajit Dube, and Annie McGrew noted in a paper last year, the Biden recovery has “unexpectedly narrowed” wage inequality, with wages growing much faster at the bottom than at the top. Dube’s analysis finds a surprising equalization process: the top 20% of people’s real wages are falling while everyone else is rising, with the bottom 20% seeing the biggest increases. But real wages are calculated using the same Consumer Price Index for everyone. But as I said, recent inflation is likely higher for lower-income Americans who spend more on groceries. Taking that into account, does the conclusion change?
The Bureau of Labor Statistics has an experimental index of inflation that varies with income distribution. This index is not updated monthly, only through June 2023. But inflation has come down significantly, so it's a pretty good indicator of inflation disparities. Let's look at the inflation rates faced by each of the five income quintiles from December 2019 to June 2023, according to the Bureau of Labor Statistics index:
— Bottom 20%: 19.5
— Next 20%: 19.3
— Middle 20%: 19.1
— 4th place 20%: 18.9
— Top 20%: 18.0
So, yes, inflation is higher for lower-income Americans. But the difference from bottom to top is 1.5 percentage points, much smaller than the difference implied by Dubé's wage data. In other words, taking into account the differences in the relevant inflation rates weakens the case for a “compression surprise” somewhat, but the basic result remains the same.
So does it matter that the wealthy spend differently than you and I, or, indeed, that those of us in the top fifth spend differently than middle-class Americans? In important ways, yes. But it doesn't change the story of a remarkably equalizing economic recovery.
Paul Krugman writes a column for the New York Times.
