The deflator for personal consumption expenditures in the national income accounts, which is used to eliminate inflation from measures of consumption, does not have this problem. The argument that standards of living have been rising since 1970 finds further support in Engel's law, which with plentiful historical evidence posits an inverse relationship between one's standard of living and the share of total spending one devotes to food. Measures of inequality based on the survey of consumer expenditures also show a quite different trend from those based on income. According to the latter, inequality has increased strikingly. For example, the ratio of income in the top three deciles to income in the bottom three rose from 5.4 in 1961 to 7.9 in 1992.
Incomes fluctuate more than consumption does from one year to the next.
People do not decrease their spending significantly when they regard a loss of income as temporary. Since consumption is a more accurate proxy for permanent income than annual income is, this is still another reason to prefer consumption to income as a measure of material welfare. Moreover, on several counts consumption is a more appropriate measure of economic well-being than income. Click here for an index of Conference Summary .