In my latest column, I make claims that show Donald Trump hasn't taken a commercial flight in a long time, and say America's terrible airports make us look like a third world country. , it was a little interesting.
Coincidentally, a few days ago I flew into Newark Liberty International Airport's new Terminal A and realized something that should be obvious to anyone who has been flying commercially for years. That said, American airports are actually getting much fancier. I'd much rather fly to Newark than many European airports where you still have to take a bus from the plane to the terminal.
But this got me thinking. why Are US airports better equipped than they used to be? (The flying experience can still be miserable because of security lines, but that's another question.) The obvious answer is , that they are responding to customer needs, and certainly that has always been true.
Perhaps one of the main reasons is that while flying is no longer an exclusive experience for the elite as it was during the “jet set” era, the average person who flies frequently and spends a lot of time at airports Probably much richer than that. 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 have no commercial activity at all) have seen far greater income increases than the middle class. I have experienced. Below are the estimates from the Congressional Budget Office (don't worry about the bottom quintile numbers, which are a source of considerable controversy but are not relevant to today's discussion).
So my guess is that the airport caters to this wealthy clientele. That means the same customer base that's driving the proliferation of gourmet supermarkets and the gentrification of some urban areas is also equipping airports with better food and stores than ever before. I'm not making a value judgment here. I myself belong to that class and am benefiting from the trend.
Rather, my point is that airports, like many other institutions, serve specific income groups. And it follows that wealthy people buy different things than less fortunate people. This means they care about different prices. There are countless posts on social media, like one from investor Kyle Bass, complaining about the price of food at airports and room service at luxury hotels.
OK, I admit I included this mainly because Bass was eating Diet Coke with waffles for breakfast (shudder). But ridicule aside, the point is these are not prices that matter to most Americans. And because people spend money differently, the useful abstraction we think of as the “consumer price level” is that different groups face at least some degree of different inflation rates, and therefore different slopes for different people. replaced by truth.
My colleague Peter Coy wrote about this the other day, and I wanted to pursue this issue a little further and discuss whether the diversity in inflation rates should affect how Americans view how things have been in recent years. I thought I'd ask if that's the case.
The truth is, while it's fun to make fun of wealthy people who complain about the price of fancy meals, there's good reason to believe that recent inflation has actually been worse for people at lower income levels. why? This is mainly due to soaring food prices.
Last week I debunked the widely circulated claim that official figures on national food prices vastly underestimate food inflation. There's good reason to believe that the Bureau of Labor Statistics has the numbers more or less accurate.
But what these precise BLS numbers show is that food prices are rising more than overall prices, reflecting a variety of factors, from climate change to the war in Ukraine.
And one of the most well-established regularities in economics is Engel's law. This means that low-income households spend a higher proportion of their income on food than high-income households. Does this mean that America's economic development over the past few years has hit the middle and working classes harder than the wealthy?
Not necessarily, because there's something else going on.
As David Orter, Arindrajith Dube, and Annie McGrew noted in a paper last year, there was an “unexpected compression” of wage inequality during the Biden administration's recovery, with wage growth at its highest. It was much faster at the bottom. Mr Dube's latest real wage change graph is below.
Note that even though the Y-axis says “% change,” 0.1 actually means 10 percent.
This graph shows a noticeable process of equalization. That is, real wages for the highest quintile have fallen, everyone else has increased, and the lowest quintile has earned the most. However, there is one concern here. Real wages are calculated using the same consumer price index for everyone. But as we've noted, recent inflation has probably been higher among low-income Americans, who spend more on groceries. Would taking that into account undermine the conclusion?
Well, the Bureau of Labor Statistics has an empirical measure of inflation that varies across the income distribution. This metric is not updated monthly. He will only rise until June 2023. But inflation has fallen significantly, so this is still a pretty good indicator of inflation differentials. Let's take a look at the inflation rate faced by each of the five income quintiles from December 2019 to June 2023, according to BLS measurements.
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Bottom 20%: 19.5
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Next 20%: 19.3
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Middle 20 percent: 19.1
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Fourth 20 percent: 18.9
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Top 20%: 18.0
Yes, lower-income Americans had higher inflation rates. However, the dispersion from bottom to top is much smaller than the dispersion of Dube's pay data in the graph above, at 1.5 percentage points. In other words, taking into account the relevant differences in inflation slightly alleviates the case of “unexpected compression”, but the basic result remains the same.
So does it matter that the rich spend differently than you and I, or indeed that those in the top quintile spend differently than Americans in the middle? Yes, in some important ways. However, this does not change the story of a significantly flattened economic recovery.
quick hit
Decreasing inequality will increase the price of fast food.
But while the cost of eating out initially lagged behind the price of groceries, it has only recently caught up.
Long-term trends in food expenditures.
The eggshell will gradually chip away.
