We typically talk about inequality in terms of income and wealth. But what are income and wealth good for? They’re good for their exchange value, i.e., what you can get with them. Another way of saying this is that income and wealth are proxies for current or future spending. So let’s look at how Americans have been spending:
The trend: over the past 50+ years, American households have been spending a bit more on housing and transportation, a lot less on food and clothing, and until recently about the same on healthcare. These are the basics. Compared to 1961 and 1973, Americans have much more discretionary income these days - but almost all the progress on that front was made by 1985. What about the poorest Americans?
The big problem for the poor is the cost of housing. Food less so, because it’s easier to buy cheaper but equally nutritious stuff. With housing, you’re kinda stuck with what’s available in the local market. Transportation expenses would go down if one could afford to live closer to where the better-paying jobs were. Cheaper healthcare would mean lower premiums, lower out-of-pocket expenses, fewer bankruptcies, less disability, and better management of chronic conditions.
When you consider poverty and inequality as matters of household spending, different policy solutions present themselves. Redistribution in itself does not lower expenses and too much redistribution from the investing class could have inflationary effects. What we need to do is reduce the cost of housing and healthcare. Less spending on the basics means better quality of life and additional resources for moving up the economic ladder: more time, better health, less stress, and more money for education and training.