Thursday, January 25, 2007

A further note on consumption

Tyler also has this very good post on consumption.
Consumption data, even if sometimes misused by zealous libertarians, are not a means of dismissing the poverty problem, but they do put that problem in another light.

First, they show that income and wealth data overstate poverty and inequality problems. Second, a focus on income data leads one to conclude that the elderly require most of the assistance. A focus on consumption data lead one to conclude that helping parents with children is, in many cases, more important. That sounds right to me.
I would add, that almost anything spent on children is investment -- each child has a long (and hopefully) productive life in front of them, with many years to both 1) enjoy living and 2) contribute to society. Any dollar that goes into improving their health, skills, etc. will probably pay dividends for years.

One the other hand, spending on the elderly is just the opposite -- it's almost pure consumption. Every dollar spent on them has a much shorter time to yeild dividends, both to themselves and to others, The major government entitlement programs today (Social Security, Medicare) and focused entirely on the elderly, not on the very young.

I am not arguing that one should spend on the young and not on the old -- both investment and consumption are important just as both young people and old people are important. Nor am I arguing that government entitlement programs are the best way to help people. I'm just saying that dollars spent on the young can be classified as investment, and dollars spent on the old can be classifed as consumption.

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