I'm a bit skeptical of Tyler Cowen's article dismissing the rise in income inequality as a primarily demographic phenomenon, but I'm particularly confused by his conclusion, that "What matters most is how well people are doing in absolute terms."
That is, on its face, true. But it doesn't seem terribly illuminative. Indeed, It'd be easy enough to take that line to justify the opposite of Tyler's intent, arguing that, yes, the measure of a society's economy is the absolute buying power of its median member, or of its bottom 20 percent, or some other arbitrary measure. Such a perspective would make income inequality more, not less, problematic, as you'd then want to engage in some heavy redistribution to make said member or members better off in an absolute fashion. Now, I think that Tyler is actually saying there's some line of "well enough" above which we needn't be so concerned, but then that line needs to be precisely defined so we can decide if that's in fact true.
Elsewhere, Tyler capably argues that you've not seen much change in consumption patterns (though you have seen rapid rises in debt, and second mortgages, etc), but that would appear neither here nor there given his criteria. In absolute terms, the majority of folks could be doing better. The paper he references, after all, says, "we first document that the recent increase in income inequality in the U.S. has not been accompanied by a corresponding rise in consumption inequality. Much of this divergence is due to different trends in within-group inequality, which has increased significantly for income, but little for consumption." So there is more money, it's just not being spent. Assumedly, giving it to folks who would spend it would make them better off. There may be reasons of fairness or efficiency that militate against doing so, but that's sort of a different argument.
It's also worth saying that the authors believe the major reason consumption hasn't tracked inequality is the emergence of more developed credit markets, though I'd be lying if I said I completely understood their discussion of that point.
