Welcome to the latest edition of The Trust Fund's #makeastatement Saturday blog! Today we're going to talk more about finances and economics and income inequality. Ready, Funders?
Specifically, we're going to talk about the economic concept of a person's marginal propensity to consume (I know - this sounds super pretentious already. Just you wait.). One's marginal propensity to consume (MPC) is the proportion of an increase in either income or share price that a person then spends on goods and services. In other words, if you earn an extra $100 and you spend $80 of it, that $80 is your marginal propensity to consume (mathematically expressed as .8). There are a couple of ways to think about your marginal propensity to consume- as an expression of your income (i.e. when you get a raise or a bonus or take a second job) or as an expression of your wealth (i.e. how much do you spend when your stock values go up). This is where all this jargon becomes relevant to The Trust Fund.
Now, a lot has been written about what impacts an individual's MPC by people much, much smarter than me and I am certainly not an economist. But I want to highlight a couple of things that I think are interesting here - as we've previously discussed, being able to invest in the stock market is to have the privilege of income and access. Yes, there are ads all over the place that say that no amount is too small to invest and saving for the future is generally a good idea - having money for emergencies, a down payment for a car or home, retirement, etc - is great. But what those ads fail to acknowledge is that there are large portions of people for whom any cash they would save needs to immediately be reinvested in their current health, home, family. You can't plan for the future when your right now is constantly at risk. And so, this MPC out of wealth is irrelevant to these folks. So what about MPC of income? For these folks, generally, their MPC is higher than average but not because they want it to be, necessarily. When we talk about spending when you get some extra income, a lot of think about luxury items - a new dress or a fancy meal out. But that's not always the case. Extra income might be going towards paying down old debts or making sure this week you can fill your shelves with food.
To recap: folks with low incomes generally have a greater tendency to spend any extra income they get but that extra income is going towards necessities, which makes this MPC figure misleading. So, you can see why it's completely infuriating when politicians talk about how poor people should just stop buying iPhones if they want to afford to go to the doctor. These statements come from a complete lack of self-awareness and privilege. You cannot assume that people who can't afford to go to the doctor are just misallocating their resources. If you cannot accept the reality that the United States has created a financial system that strategically excludes the poor and that many, many people literally live paycheck to paycheck, you have no business drafting policy that impacts these very people.
I want to take this a step further. I can't be the only one who has heard people argue that insurance shouldn't cover abortion or that abortion should be expensive so folks can "learn their lesson". It makes me sick, honestly, to write these out. But it's also what drives The Trust Fund. We've made accessing safe abortion hard enough in this country without pricing people out of receiving the care they need. And, as we've also discussed before, many people who have abortions do so precisely because they don't have the income, savings, or wealth, to care for a child. To say that healthcare is a luxury that people should be using their MPC for is ludicrous. To say that people who are struggling to make ends meet on their own should be forced to use non-existent savings to have an abortion or give birth (also not cheap, BTW) that will allow that person to work towards a stable financial future is inhumane. Abortion funds exist so people don't have to make the choice between their health and future and their other basic needs.
Apologies for all the jargon this week, Funders. If income inequality is interesting to you, definitely check out this article and the paper it references. It's some really fascinating research and makes some great points about how we can make a public safety net that actually helps lift people out of the poverty cycle. Imagine that.