Comments on NYT column:
Why has no one asked Steven Levitt why he is promoting a paper (Inequality and Prices: Does China Benefit the Poor in America?) that asks not to be circulated. From the PDF:
"Preliminary and Incomplete. Please do not circulate."
I find it amazing that anyone can argue with a straight face that (1) because the cost of discretionary playthings of the rich have grown more than basic necessities of "the poor" this means that (2) the poor are, in effect, better off than the rich (ie, no real income "gap").
But that's what he does.
Inequality has not grown over the last decade — at least not very much. What we think is a rise in inequality is merely an artifact of how we measure things.
As improbable as it may seem, I believe them.
Their argument could hardly be simpler. How rich you are depends on two things: how much money you have, and how much the stuff you want to buy costs. If your income doubles, but the prices of the things you consume also double, then you are no better off.
Only the better-off have the discretionary income to buy quality food -- ie, that are grown with limited antibiotics and pesticides, that are not infused with high fructose corn syrup (which stresses the liver like alcohol and does not 'sate' like sugar). From the PDF:
[We] show that the poor systematically consume lower quality products across all modules than the rich ... the poor have benefitted from an increased access to [cheap] goods relative to that of the rich ... the share of non-durable [cheap] consumption in total consumption is higher for the poor than the rich....
The lowest income groups consume UPCs within Milk – 16oz that are 25 percent cheaper than those consumed by the households in the highest decile of the income distribution. In particular, richer household consume a much higher fraction of organic milk.
Note the word "richer" -- perhaps it's all in how we define "rich."
I'm going with a real one: the upper 1%.
Official government data show that the only group that has seen HH income gain (real dollars) since 1980 is the **upper 1%** -- theirs has tripled. Just about everyone else -- 99% -- has seen income either be flat (bottom quintile) or increase slightly (top quintile, most of it influenced by the upper 1%).
To those of you questioning the plight of the middle class -- here you are. Basically FLAT.
Chart: http://uspolitics.about.com/b/2008/03/26/inequality-in-america.htm
Now ... add to this the fact that the CPI has been "deflated" in that 28-year period ... in other words, the definition (what goes into the basket, how it is calculated) has changed, and it has changed in a way to reduce the impact of inflation (see Kevin Phillips, Bad Money).
Thus, these "flat" or "flat-ish" lines would slope more "downward" than they do if we were using the same definition of inflation as we were in 1980. And yeah, that means the upper 1% probably didn't get a full tripling of real income-- maybe just 2.5x. Versus a negative.
This study is doing something similar -- the economists (this is why I'm glad I decided to do something else with my life than go on for a PhD after my masters -- economics makes me hold my nose any more) have jiggled the definition (what goes into the basket).
Like the old joke: strand three economists on a deserted island after a shipwreck ... and give them a case of canned food (the old-fashioned kind). One economist will say to the others, "
assume we have a can-opener..."
The US GINI coefficient (or index) is the highest in the developed world, and it's getting bigger. This is something we should be concerned about, not gloss over with superficial columns like this one.
Why did the prices of the things poor people buy fall relative to the stuff rich people buy? Lefties aren’t going to like the answers one bit: globalization and Wal-Mart!
Finally, the glib reference to Wal-Mart ignores the externalities associated with having a Wal-Mart in your neighborhood, including taxpayer-subsidized health insurance for the working poor who are employed there.
All in all, a disappointing and very superficial post.
Hear-hear to Nylund (#17), mathking (#21), PaulS (#55), Meredith (#60), Linda (#104)
To Chesapean (#22) -- I've read analyses that demonstrate it is a myth that people are moving back-and-forth from one income bracket to another.
Finally -- I'll need to re-read the paper when I'm more awake.
I *think* the authors are talking ONLY about "income inequality" in the context of this one shopping basket (non-durable goods).
I still don't see how you can analyze things purchased at the grocery store and then extrapolate to general statement on income equality, which is what it sounds like they do (emphasis added):
Abstract
Over the past three decades there has been a spectacular rise in income inequality as measured by official statistics. In this paper we revisit the distributional consequences of increased imports from China by looking at the compositional differences in the basket of goods consumed by the poor and the rich in America. Using household data on non-durable consumption between 1994 and 2005 we document that much of the rise of income inequality has been offset by a relative decline in the price index of the poor. By relaxing the standard assumptions underlying the representative agent framework we find that inflation for households in the lowest tenth percentile of income has been 6 percentage points smaller than inflation for the upper tenth percentile over this period.
The lower inflation at low income levels can be explained by three factors: 1) The poor consume a higher share of non-durable goods —whose prices have fallen relative to services over this period; 2) the prices of the set of non-durable goods consumed by
the poor has fallen relative to that of the rich; and 3) a higher proportion of the new goods are purchased by the poor. We examine the role played by Chinese exports in explaining the lower inflation of the poor. Since Chinese exports are concentrated in low-quality non-durable products that are heavily purchased by poorer Americans, we find that about one third of the relative price drops faced by the poor are associated with rising Chinese imports.
